Inflation w/ CPI Can use either BLS or St. Louis Federal Reserve website FRED website,https://fred.stlouisfed.org/ Search for ‘consumer price index’àuse ‘Consumer Price Index for All Urban Consumers:...

Inflation w/ CPI

• Can use either BLS or St. Louis Federal Reserve website
  • FRED website,https://fred.stlouisfed.org/
  • Search for ‘consumer price index’àuse ‘Consumer Price Index for All Urban Consumers: All Items in U.S. City Average (CPIAUCSL)’
    • In ‘EDIT GRAPH’ change to annually
  • Change starting date to January of 1960; download as ‘Excel (data)’

*You’ll be graded on how well you follow these exact specifications for both the data and the graph

Open file

• change date format by highlighting all dates, going to ‘Home’àunder ‘Number’ go to dropdown list ‘General’à‘More Number Formats’à‘Date’àscroll down to ‘3/14/2012’
  • This will change the dates into a more friendly looking format

Now insert an empty row between ‘Frequency: Annual’ and ‘Observation date’, i.e. row 11; this is in order to help us format the data as a table shortly

• Make a new column next to ‘CPILFESL’ called ‘Percent change in CPI’
  • Recall how to make a percentage change from our previous exercises
  • Now make into a percentage and increase the decimal to the hundredths place
  • REMEMBER:the numbers you get are going to reflect the rate of inflation from the previous year to the next; in other words, if you get X% inflation in the row for year Y, it means that from year Y-1 to year Y, the typical basket of goods has increased X%, i.e.The quoted inflation rate is actually the change in the index from the prior period, whether it is monthly, quarterly or yearly.
• Change the names of the columns into Date, CPI-U, and Percent change in CPI-U, respectively
• Make a time-series of the percent change of inflation; change x-axis (Series 1) name to ‘Inflation: % Change, XXXXXXXXXX’
• Change the x-axis to a ‘Date axis’ and make sure it’s at 2-year intervals
  • MAKE SURE THE AXES ARE CORRECT, i.e. x-axis=dates, y-axis=percentages
  • Change the width of the line to 2pt
  • Make the size of the chart 5 by 9
• Finally, name the chart ‘Annual CPI-U Percent Change: Seasonally Adjusted 1960 to 2019’ with 1960 to 2019 underneath the other text

Questions (Full sentences, grammar and spelling; use data in chart which is purposefully different than data found through a Google search so that you can’t cheatàfor FULL CREDIT)

1) Find the average rate of inflation over the time period in our data and report that number.

2) What year was inflation the highest? What about the lowest?

3) Assume the CPI for year 1 is 140 and year 2 is 130. Calculate the inflation rate between these two years. What is this called?

4) Explain how inflation interacts with both creditors and debtors.

5) If there’s an inflation rate of 2% for all goods/services including wages over a year and an individual has a loan with 2% interest, explain the effect on their debt.

6) Explain the implications for people on a fixed income (e.g. SS or SSDI) if inflation is underestimated during a given year. Why might there be a need to reevaluate the weights associated with each component’s price change that goes into measuring inflation for this specific group of people?